What is the primary purpose of a loss leader pricing strategy?

The primary purpose of a loss leader pricing strategy is to attract customers by selling products below cost. This approach is designed to draw customers into a store or onto a website with the expectation that once they are there, they will purchase additional items at regular prices. The idea is that the initial loss incurred from selling a product at a reduced price will be offset by the higher sales volume of other products that customers are likely to purchase alongside the loss leader.

By using this strategy, businesses aim to increase foot traffic or online visits, thereby enhancing the likelihood of achieving cross-selling opportunities. This method can also help in building customer loyalty, as consumers may develop a preference for the store offering consistently low prices on select items, encouraging repeat visits and purchases.

Other strategies mentioned would not serve the same purpose; for instance, increasing overall profit margins focuses on maximizing profit from all products sold without the intention of attracting new customers through loss-leading prices. Similarly, premium pricing is associated with a luxury image far removed from the concept of attracting customers through discounts, and product bundling focuses on creating value by grouping items together, rather than using low prices on individual products as a draw.